A Profit Opportunity 7 Years in the Making (The Real Reason Microsoft Acquired Nuance for $16 Billion)

0 | By Michael A. Robinson

On April 25, 2014, I introduced you to Cortana, a voice-based, AI-powered digital assistant from Microsoft Corp. (MSFT).

I wanted you to see the trend that was forming with AI voice assistants, I’ve recommended MSFT several times as a great long-term report.

A conversation we had nearly seven years ago to the day turned out to be very prescient.

My advice that day would have made you 244.6%, doubling the S&P 500 over the period.

Mind you, I have recommended Microsoft several times as a great long-term tech and continue to do so.

But in our chat that day, I told you that if you really wanted to cash in on the bright future for voice-recognition technology, you should invest in Nuance Communications Inc. (NUAN).

Fast forward to today, and it turns out Microsoft finally saw what I saw. Mr. Softee (a nickname given to the tech giant way back when) recently announced it was buying Nuance for $16 billion.

The move gives Microsoft a huge leap into voice-based medical tech in a market growing 20% annually.

Let me show you just how far this merger could take Microsoft…

Intelligent Planning

Now then, I was actually even more correct than I knew at the time.

Microsoft’s Cortana, while a great idea, simply never took off. It launched with Microsoft Windows Phones, but those were soon cancelled. Only one smart speaker that supports Cortana was ever made. Inc.’s (AMZN) Alexa and Apple Inc.’s (AAPL) Siri got more support and grew faster, while Cortana got left in the dust.

In 2018, the executive in charge of Cortana resigned from Microsoft, and the voice assistant was demoted from the firm’s AI research division to the Experiences and Devices group.

The writing was on the wall. But last year Microsoft made it official in a blog post, announcing that it was removing support for having Cortana control music on your devices, integrating with smart home devices, and integrating with third-party products.

All that’s left is helping you work with Microsoft’s Office 365 suite of apps.

But cutting back on Cortana doesn’t mean Microsoft has abandoned AI.

Far from it.

It’s just abandoning the fickle consumer market in favor of the highly profitable medtech space.

And it’s doing so by following my advice from seven years ago and investing in Nuance.

A Nuanced Approach

This move is not a surprise coming from the new Microsoft. For a few years now the company has been cutting its losses in areas where it was outmatched and making smart moves to add new growth routes.

For example, Microsoft recently made a deal with Elon Musk’s space company SpaceX to provide cloud computing. Under the deal, Microsoft will help run SpaceX’s ultra-fast Starlink satellite Internet service, while SpaceX will co-sell Microsoft’s Azure’s Orbital cloud service to Starlink’s corporate clients.

Microsoft also has a10-year, $10-billion contract to run the Pentagon’s massive Joint Enterprise Defense Infrastructure (JEDI) cloud that will unite every soldier, ship, and airplane on a single cloud.

Mr. Softy also recently invested in Cruise, a San Francisco-based autonomous car startup backed by the likes of General Motors Co. (GM) and Honda Motor Co. Ltd. (HMC).

Under the deal, both Cruise and GM will use Microsoft’s Azure cloud service as their preferred cloud provider, and all of Cruise’s self-driving data and AI analysis will be done on Azure.

Those are just three examples of the strategic partnerships Microsoft is making for its future.

Buying Nuance is another one.

While Nuance is most famous for having partnered with Apple on developing the Siri voice assistant in the early 2010s, it’s since moved away from the consumer market.

Nowadays, Nuance focuses on the healthcare sector. In the U.S., more than half of all physicians and over 75% of radiologists use Nuance’s AI-based systems for voice and text recognition.

This allows doctors to keep their patients’ medical documentation up-to-date by speaking as they work, for example by describing their findings as they look over radiology imaging.

This is much faster than having to do it all twice – once to look over patient labs and reports, and then again by sitting down and typing it all in.

It’s no wonder, then, that Nuance’s healthcare AI tech is used in 77% of American hospitals.

As an added bonus, Nuance has long-standing relationships with most of the biggest electronic healthcare record providers. So, chances are most physicians can integrate Nuance into their existing systems without issues.

Dynamic Growth

For Microsoft CEO Satya Nadella, this $19.7 billion acquisition is his second-largest yet, dwarfed only by the purchase of LinkedIn in 2016 for $26 billion.

The Nuance deal is a great fit for both sides. Nuance gets the full backing of Microsoft’s Azure cloud and its legions of AI researchers.

For Microsoft, it’s a combo of organic and bolt-on growth. Microsoft’s Azure cloud computing service already has specialized platforms for healthcare.

But this acquisition puts Microsoft squarely in the sprawling $1.2 trillion healthcare market. It also gives the firm another carrot to entice hospitals, clinics, and other businesses to move over to Azure cloud.

No doubt Microsoft is already thinking of how to use Nuance’s technology to help other industries automate their record-keeping, too.

Microsoft is reporting its first-quarter earnings today, after beating Wall Street estimates for four quarters in a row.

If the firm misses estimates this time around, the stock could sell off -giving you a great buying opportunity.

Because in the last few years, Microsoft has really reinvented itself by making the right strategic partnerships for its future in defense, space, autonomous cares, medtech, and elsewhere.

It proves that Microsoft is now the tech giant to own for the long haul.

Cheers and good investing,

Michael A. Robinson

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